From the March 1998 SURVEY OF CURRENT
BUSINESS

A Guide to the NIPA's

By Eugene P. Seskin and Robert P. Parker

This guide presents information on the structure, definitions, presentation, and methodologies
that underlie the national income and product accounts (NIPA's). This information is from the
forthcoming publication National Income and Product Accounts of the United States,
192994 and includes the "Updated Summary NIPA Methodologies" that was published
in the September 1997 issue of the SURVEY OF CURRENT BUSINESS. The information reflects
the changes that were introduced in the most recent comprehensive and annual revisions of the
NIPA's.

The NIPA's show the composition of production and the distribution of incomes earned in
production. Thus, they represent a critical element of the U.S. economic accounts, which are
designed to provide a consistent and comprehensive picture of the Nation's economy.

The first section of this article describes the definitions and classifications underlying the
NIPA's. The second section discusses the presentation of the NIPA's, and the third section
discusses the statistical conventions used for the NIPA estimates. An appendix lists the principal
source data and methods used to prepare the estimates of gross domestic product (GDP).

Definitions and Classifications Underlying the NIPA's

NIPA entries

The major components of the NIPA's are presented and defined below within the context
of the Summary National Income and Product Accounts (see table A on page 28). The five
summary accounts show the composition of production and the distribution of the incomes
earned in production. In these accounts, production consists of the goods, services, and
structures that are produced in the current period. Production, or "current production," and its
related incomes do not include gains or losses from the sale of nonproduced assets, such as
land, or of financial assets, such as stocks and bonds. In addition, production does not include
gains or losses from holding goods in inventories.

The first summary account is the National Income and Product Account: The right side
shows GDP as measured by the sum of goods and services produced in the United States and
sold to final users, and the left side shows GDP as measured by the incomes earned in
production (gross domestic income) and the "statistical discrepancy" between the two measures.
Each of the components in this summary account can be mapped to one of the other summary
accounts and can, in turn, be mapped to one or more of the 142 tables that make up the full set
of NIPA tables. This system of integrated, double-entry accounts provides a comprehensive and
unduplicated measure of economic activity within a consistently defined framework./1/ Thus,
the NIPA'stogether with the industry, wealth, and regional accountscan be used to trace the
principal economic flows among the major sectors of the economy.

Within the summary accounts, each entry has a counterentry, generally in another account.
The parenthetical numbers that follow an entry in table A identify the counterentry by account and
line number. Except for the major income and product aggregates, the entries are usually
defined in the sequence in which they appear in the five-account summary.

The definition of a component is not repeated for the counterentry, but a cross-reference is
made to the first appearance of the definition. After the components in the
five-account-summary are defined, the following other definitions are presented: Final sales of
domestic product, gross domestic purchases, final sales to domestic purchasers, population,
personal saving as a percentage of disposable personal income, gross saving as a percentage of
gross national product, U.S. residents, foreign residents, and the rest of the world.

Major aggregates

Gross domestic product (GDP), the featured measure of U.S. output, is the market
value of the goods and services produced by labor and property located in the United
States. Because the labor and property are located in the United States, the suppliers (that is,
the workers and, for property, the owners) may be either U.S. residents or residents of the rest of
the world.

Gross domestic income (GDI) (134) measures output as the costs incurred and the
incomes earned in the production of GDP. In theory, GDP should equal GDI, but in practice, they
differ because their components are estimated using largely independent and less-than-perfect
source data. This difference is termed the "statistical discrepancy" (see page 34).

Gross national product (GNP) is the market value of the goods and services
produced by labor and property supplied by U.S. residents. Because the labor and property are
supplied by U.S. residents (see page 36), they may be located either in the United States or
abroad. The difference between GDP and GNP is net receipts of factor income from the rest of
the world. These net receipts represent income from the goods and services produced abroad
using the labor and property supplied by U.S. residents less payments to the rest of the world for
the goods and services produced in the United States using the labor and property supplied by
foreign residents. Factor incomes are measured as compensation of employees, corporate
profits (dividends, earnings of unincorporated affiliates, and reinvested earnings of incorporated
affiliates), and interest.

Gross national income (GNI) (131) is the costs incurred and the incomes earned in
the production of GNP. GNI is the sum of (1) factor incomescompensation of employees,
proprietors' income, rental income of persons, corporate profits, and net interest; (2) three
nonfactor chargesbusiness transfer payments, indirect business taxes, and the current surplus
of government enterprises less government subsidy payments; and (3) consumption of fixed
capital (CFC), which is the fixed capital "used up" in the production process during the
accounting period. GNI and GNP also differ by the statistical discrepancy.

Net domestic product (NDP) is the net market value of the goods and services
attributable to labor and property located in the United States and is equal to GDP less CFC.

Net national product (NNP) is the net market value of goods and services attributable
to the labor and property supplied by U.S. residents and is equal to GNP less CFC. The
measure of CFC used for both NDP and NNP relates only to fixed capital located in the United
States. Investment in the capital is measured by private fixed investment and government gross
investment.

National income (120) is the sum of the factor incomes. It is a net factor-cost
measure (net of CFC) equal to the income that originates in the production of goods and services
from labor and property supplied by U.S. residents.

Domestic income, also a net factor-cost measure, is the income that originates in the
production of goods and services attributable to labor and property located in the United States.

Personal income is the income received by persons from all sourcesthat is, from
participation in production, from both government and business transfer payments, and from
government interest (which is treated like a transfer payment). "Persons" consists of individuals,
nonprofit institutions that primarily serve individuals, private noninsured welfare funds, and
private trust funds. Personal income is calculated as the sum of wage and salary disbursements,
other labor income, proprietors' income with inventory valuation and capital consumption
adjustments, rental income of persons with capital consumption adjustment, personal dividend
income, personal interest income, and transfer payments to persons, less personal contributions
for social insurance.

Disposable personal income is personal income less personal tax and nontax
payments. It is the income available to persons for spending or saving.

National income and product account

GDP is measured as the sum of personal consumption expenditures, gross private
domestic investment (including change in business inventories and before deduction of charges
for CFC), net exports of goods and services (exports less imports), and government consumption
expenditures and gross investment. GDP excludes intermediate purchases of goods and
services by business.

Personal consumption expenditures (136) is goods and services purchased by
persons resident in the United States. Personal consumption expenditures (PCE) consists
mainly of purchases of new goods and of services by individuals from business. In addition, PCE
includes purchases of new goods and of services by nonprofit institutions (including
compensation of employees), net purchases of used goods by individuals and nonprofit
institutions, and purchases abroad of goods and services by U.S.
residents./2/ PCE also includes purchases for certain goods and services provided by
government agenciesprimarily tuition payments for higher education, charges for medical care,
and charges for water and sanitary services. Finally, PCE includes imputed purchases that keep
PCE invariant to changes in the way that certain activities are carried outfor example, whether
housing is rented or owned, whether financial services are explicitly charged, or whether
employees are paid in cash or in kind.

The following conventions are used to classify each PCE commodity: Durable goods
(137) are commodities that can be stored or inventoried and that have an average life of at least
3 years; nondurable goods (138) are all other commodities that can be stored or
inventoried; and services (139) are commodities that cannot be stored and that are
consumed at the place and time of purchase.

Gross private domestic investment (140) consists of fixed investment (141)
and change in business inventories (146). Fixed investment consists of both
nonresidential (142) fixed investment and residential (145) fixed investment. It consists
of purchases of fixed assets, which are commodities that will be used in a production process for
more than 1 year, including replacements and additions to the capital stock, and it is measured
before a deduction for consumption of fixed capital. It covers all investment by private
businesses and by nonprofit institutions in the United States, regardless of whether the
investment is owned by U.S. residents. (Purchases of the same types of equipment and
structures by government agencies are included in government gross investment.) It excludes
investment by U.S. residents in other countries. Nonresidential fixed investment consists of both
structures (143) and producers' durable equipment (PDE) (144).

Nonresidential structures consists of new construction, brokers' commissions on sales of
structures, and net purchases of used structures by private business and by nonprofit institutions
from government agencies. New construction also includes hotels and motels and mining
exploration, shafts, and wells.

Nonresidential PDE consists of private business purchases on capital account of new
machinery, equipment such as furniture, and vehicles (except for personal-use portions of
equipment purchased for both business and personal use, which are included in PCE), dealers'
margins on sales of used equipment, and net purchases of used equipment from government
agencies, from persons, and from the rest of the world.

Residential fixed investment consists of private structures and of residential
PDEequipment owned by landlords and rented to tenants. Investment in structures consists of
new units, improvements to existing units, mobile homes, brokers' commissions on the sale of
residential property, and net purchases of used structures from government agencies.

Change in business inventories (146) is the change in the physical volume of goods
purchased by private business for use in the production of other commodities or for resale, valued in
average prices of the period. It differs from the change in the book value of inventories reported
by most business; the difference is the inventory valuation adjustment (described on the
next page).

Net exports of goods and services (147) is exports (148)
less imports (149) of
goods and services. Receipts and payments of factor income and transfer payments to the rest
of the world (net) are excluded.

Government consumption expenditures and gross investment (150) consists of net purchases of goods, services, and
structures from business and from the rest of the world by general government; payments by
general government to households in the form of compensation of employees; the consumption
of general government fixed capital, which represents the value of the current services of fixed
assets of general government; net purchases of fixed assets by government enterprises;
inventory change of government enterprises; and a deduction for general government
salesprimarily tuition payments for higher education and charges for medical care.
Of this total, gross investment is net purchases of new and used structures and
equipment by general government and government enterprises; all other transactions
are consumption expenditures. Government consumption expenditures
and gross investment excludes purchases by government enterprises (except for
fixed assets), transfer payments, interest paid or received by government,
subsidies, and transactions in financial assets and in nonproduced assets,
such as land.

Compensation of employees (11) is the income accruing to employees as
remuneration for their work. It is the sum of wage and salary accruals and of supplements to
wages and salaries.

Wage and salary accruals (12) consists of the monetary remuneration of
employees, including the compensation of corporate officers; commissions, tips, and bonuses;
voluntary employee contributions to certain deferred compensation plans, such as 401(k) plans;
and receipts in kind that represent income. Wage and salary accruals consists of
disbursements (13) and wage
accruals less disbursements (14). Disbursements is
wages and salaries as just defined except that retroactive wage payments are recorded when
paid rather than when earned. Accruals less disbursements is the difference between wages
earned, or accrued, and wages paid, or disbursed. In the NIPA's, wages accrued is the
appropriate measure for national income, and wages disbursed is the appropriate measure for
personal income.

Supplements to wages and salaries (15) consists of employer contributions for
social insurance and other labor income. Employer contributions for social insurance (16)
consists of employer payments under the following Federal and State and local government
programs: Old-age, survivors, and disability insurance (social security); hospital insurance;
unemployment insurance; railroad retirement; government employee retirement; pension benefit
guaranty; veterans life insurance; publicly administered workers' compensation; military medical
insurance; and temporary disability insurance. Other labor income (17) consists of
employer payments (including payments in kind) to private pension and profit-sharing plans,
private group health and life insurance plans, privately administered workers' compensation
plans, supplemental unemployment benefit plans, corporate directors' fees, and several minor
categories of employee compensation, including judicial fees to jurors and witnesses,
compensation of prison inmates, and marriage fees to justices of the peace.

Proprietors' income with inventory valuation and capital consumption adjustments
(18) is the current-production income (including income in kind) of sole proprietorships and
partnerships and of tax-exempt cooperatives. The imputed net rental income of
owner-occupants of farm dwellings is included; the imputed net rental income of
owner-occupants of nonfarm dwellings is included in rental income of persons (described below).
Proprietors' income excludes dividends and monetary interest received by nonfinancial business
and rental incomes received by persons not primarily engaged in the real estate business; these
incomes are included in dividends, net interest, and rental income of persons. (See "inventory
valuation adjustment" and "capital consumption adjustment.")

Corporate profits with inventory valuation and capital consumption adjustments
(110) is the net current-production income of organizations treated as corporations in the
NIPA's. These organizations consist of all entities required to file Federal corporate tax returns,
including mutual financial institutions and cooperatives subject to Federal income tax; private
noninsured pension funds; nonprofit institutions that primarily serve business; Federal Reserve
banks; and federally sponsored credit agencies. With several differences, this income is
measured as receipts less expenses as defined in Federal tax law. Among these differences:
Receipts exclude capital gains and dividends received, expenses exclude depletion and capital
losses and losses resulting from bad debts, inventory withdrawals are valued at replacement
cost, and depreciation is on a consistent accounting basis and is valued at replacement cost
using depreciation profiles based on empirical evidence on used-asset prices that generally
suggest a geometric pattern of price declines. Because national income is defined as the
income of U.S. residents, its profits component includes income earned abroad by U.S.
corporations and excludes income earned in the United States by the rest of
the world. (See "inventory valuation adjustment" and
"capital consumption adjustment.")

Profits before tax (112) is the income of organizations treated as corporations in the
NIPA's except that it reflects the inventory- and depreciation-accounting practices used for
Federal income tax returns. It consists of profits tax liability, dividends, and undistributed
corporate profits.

Profits tax liability (113) is the sum of Federal, State, and local income taxes on all
income subject to taxes; this income includes capital gains and other income excluded from
profits before tax. The taxes are measured on an accrual basis, net of applicable tax credits.

Profits after tax (114) is profits before tax less profits tax liability. It consists of
dividends and undistributed corporate profits. Dividends (115) is payments in cash or other
assets, excluding the corporations' own stock, that are made by corporations located in the
United States and abroad to stockholders who are U.S. residents. The payments are measured
net of dividends received by U.S. corporations. Dividends paid to State and local government
social insurance funds and general government are included. Undistributed profits (116) is
corporate profits after tax less dividends.

Inventory valuation adjustment (IVA) (117) for corporations is the difference
between the cost of inventory withdrawals as valued in the source data used to determine profits
before tax and the cost of withdrawals valued at replacement cost. It is needed because
inventories as reported in the source data are often charged to cost of sales (that is, withdrawn)
at their acquisition (historical) cost rather than at their replacement cost (the concept underlying
the NIPA's). As prices change, companies that value inventory withdrawals at acquisition cost
may realize profits or losses. Inventory profits, a capital-gains-like element in profits, result from
an increase in inventory prices, and inventory losses, a capital-loss-like element in profits, result
from a decrease in inventory prices. In the NIPA's, inventory profits or losses are shown as
adjustments to business income (corporate profits and nonfarm proprietors' income); they are
shown as the IVA with the sign reversed. No adjustment is needed to farm proprietors' income
because farm inventories are measured on a current-market-cost basis.

Net interest (119) is the interest paid by private business less the interest received
by private business, plus the interest received from the rest of the world less the interest paid to
the rest of the world. Interest payments on mortgage and home improvement loans and on
home equity loans are counted as interest paid by business because home ownership is treated
as a business in the NIPA's. In addition to monetary interest, net interest includes imputed
interest, which is paid by corporate financial business and is measured as the difference between
the property income received on depositors' or policyholders' funds and the amount of property
income paid out explicitly. The imputed interest paid by life insurance carriers and noninsured
pension plans attributes their investment income to persons in the period it is earned. The
imputed interest payments by financial intermediaries other than life insurance carriers and
private noninsured pension plans to persons, governments, and to the rest of the world have
imputed service charges as counterentries in GDP and in net receipts of factor income from the
rest of the world; they are included in personal consumption expenditures, in government
consumption expenditures and gross investment, and in exports of goods and services,
respectively.

Business transfer payments (121) consists of payments to persons (122) and
to the rest of the world (123) by private business for which no current services are
performed. Business transfer payments to persons consists primarily of liability payments for
personal injury and of corporate gifts to nonprofit institutions. Business transfer payments to the
rest of the world is nonresident taxestaxes paid by domestic corporations to foreign
governments.

Indirect business tax and nontax liability (124) consists of (1) tax liabilities that are
chargeable to business expense in the calculation of profit-type incomes and (2) certain other
business liabilities to general government agencies that are treated like taxes. Indirect business
taxes includes taxes on sales, property, and production. Employer contributions for social
insurance are not included. Taxes on corporate incomes are not included; these taxes cannot be
calculated until profits are known, and in that sense, they are not a business expense. Nontaxes
includes regulatory and inspection fees, special assessments, fines and forfeitures, rents and
royalties, and donations. Nontaxes generally excludes business purchases from general
government agencies of goods and services that are similar to those provided by the private
sector. Government receipts from the sales of such products are netted against government
consumption expenditures.

Subsidies less current surplus of government enterprises (125). Subsidies is
the monetary grants paid by government agencies to private business and to government
enterprises at another level of government. The current surplus of government enterprises
is their current operating revenue and subsidies received from other levels of government less
their current expenses. In the calculation of their current surplus, no deduction is made for net
interest paid. The current surplus of government enterprises is not counted as a profit-type
income, and therefore, it is not counted as a factor charge. Subsidies and current surplus are
shown as a combined entry because deficits incurred by some government enterprises may
result from selling goods to business at below-market prices in lieu of giving them subsidies.

Consumption of fixed capital (126) is a charge for the using up of private and
government fixed capital located in the United States. It is based on studies of prices of used
equipment and structures in resale markets. For general government and for nonprofit
institutions that primarily serve individuals, it is recorded in government consumption
expenditures and in personal consumption expenditures, respectively, as the value of the current
services of the fixed capital assets owned and used by these entities. Private capital
consumption allowances consists of tax-return-based depreciation charges for corporations and
nonfarm proprietorships and of historical-cost depreciation (calculated by BEA using a geometric
pattern of price declines) for farm proprietorships, rental income of persons, and nonprofit
institutions. Private capital consumption adjustment is the difference between private
capital consumption allowances and private consumption of fixed capital.

Payments of factor income to the rest of the world (133) consists of payments to
foreign residents of interest and dividends, of reinvested earnings of U.S. affiliates of foreign
corporations, and of compensation paid to foreigners by U.S. residents.

Statistical discrepancy (135) is GDP less GDI or GNP less GNI. It is recorded in
the NIPA's as an "income" component that reconciles the income and product sides of the
accounts. As noted above, it arises because the two sides are estimated using independent and
imperfect data./3/

Personal income and outlay account

Personal income is the sum of wage and salary disbursements, other labor income,
proprietors' income with inventory valuation and capital consumption adjustments, rental income
of persons with capital consumption adjustment, personal dividend income, personal interest
income, and transfer payments to persons, less personal contributions for social insurance.

Rental income of persons with capital consumption adjustment (see 19).

Personal dividend income (211) is the dividend income of persons from all sources.
It equals net dividends paid by corporations (see 115) less dividends received by
government (213). Dividends received by government consists of dividends received by State
and local governments, primarily by their retirement systems.

Personal interest income (214) is the interest income (monetary and imputed) of
persons from all sources. It equals net interest (see 119) plus net interest paid by
government (216) plus interest paid by persons (217). The last item consists of all
interest paid by individuals except mortgage interest, which is reflected in net rental income of
persons.

Transfer payments to persons is income payments to persons for which no current
services are performed. It consists of business transfer payments to persons (see 122) and
government transfer payments (220). Government transfer payments includes benefits
from the following social insurance funds: Old-age, survivors, and disability insurance (social
security); hospital insurance; supplementary medical insurance; unemployment insurance;
government employee retirement; railroad retirement; pension benefit guaranty; veterans life
insurance; workers' compensation; military medical insurance; and temporary disability
insurance. Government transfer payments also includes benefits from certain other programs:
Veterans benefits other than life insurance, food stamps, black lung, supplemental security
income, public assistance (including medical care and family assistance), and educational
assistance. Government payments to nonprofit institutions excluding payments for work under
research and development contracts are also included.

Personal contributions for social insurance (221) includes payments by employees,
self-employed, and other individuals who participate in the following government programs:
Old-age, survivors, and disability insurance (social security); hospital insurance; supplementary
medical insurance; unemployment insurance; government employee retirement; railroad
retirement; veterans life insurance; and temporary disability insurance.

Personal tax and nontax payments (21) is tax payments (net of refunds) by U.S.
residents that are not chargeable to business expense and certain other personal payments to
government agencies (except government enterprises) that are treated like taxes. Personal
taxes includes taxes on income, including realized net capital gains; on transfers of estates and
gifts; and on personal property. Nontaxes includes donations and fees, fines, and forfeitures.
Personal contributions for social insurance is not included. Taxes paid by U.S. residents to
foreign governments and taxes paid by foreigners to the U.S. Government are both included in
transfer payments.

Personal saving (26) is personal income less the sum of personal outlays and
personal tax and nontax payments. It is the current saving of individuals (including proprietors
and partnerships), nonprofit institutions that primarily serve individuals, life insurance carriers,
private noninsured welfare funds, and private trust funds. Personal saving may also be viewed
as the sum of the net acquisition of financial assets (such as cash and deposits, securities, and
the change in the net equity of individuals in life insurance and in private noninsured pension
plans) and the change in physical assets less the sum of net borrowing and of consumption of
fixed capital.

Transfer payments (32) is transfer payments to persons (see 220) and
transfer payments to the rest of the world (net) (34). The latter consists of U.S. Government
military and nonmilitary grants in cash and nonmilitary grants in kind to foreign governments and
of U.S. Government transfers, mainly retirement benefits, to former residents of the United
States.

Net interest paid (35). Net interest paid by government is interest paid by
government to persons, to business, and to the rest of the world (that is, to foreign businesses,
governments, and persons) less interest received by government from persons, from business,
and from the rest of the world. Interest paid consists of monetary interest paid on public debt
and other financial obligations. Interest received consists of monetary and imputed interest
received on loans and investments, including on the balances of State and local government
social insurance funds.

Current surplus or deficit (-), national income and product accounts (39) is the sum
of government receipts (lines 12, 13, 14, and 15 of account 3) less the sum of government
expenditures (lines 1, 2, 5, 6, 7, and 8 of account 3). It may also be viewed as the sum of net
acquisition of financial assets by general government and government enterprises and net government
purchases of land and of rights to government-owned land including oil resources, less net
borrowing.

Foreign transactions account

Net foreign investment (410) is U.S. exports of goods and services, receipts of
factor income, and capital grants received by the United States (net) (see below), less imports of
goods and services by the United States, payments of factor income, and transfer payments to
the rest of the world (net). It may also be viewed as the acquisition of foreign assets by U.S.
residents less the acquisition of U.S. assets by foreign residents. It includes the statistical
discrepancy in the balance of payments accounts.

Other definitions

Final sales of domestic product is GDP minus change in business inventories;
equivalently, it is the sum of personal consumption expenditures, gross private domestic
fixed investment, government consumption expenditures and gross investment, and net exports
of goods and services.

Gross domestic purchases is the market value of goods and services purchased by
U.S. residents, regardless of where those goods and services were produced. It is GDP minus
net exports of goods and services; equivalently, it is the sum of personal consumption
expenditures, gross private domestic investment, and government consumption expenditures
and gross investment.

Final sales to domestic purchasers is gross domestic purchases minus change in
business inventories.

Population is the total population of the United States, including the Armed Forces
overseas and the institutionalized population. The monthly estimate is the average of Census
Bureau survey estimates for the first of the month and the first of the following month; the
quarterly and annual estimates are the averages of the relevant monthly estimates.

Personal saving as a percentage of disposable personal income (DPI), frequently
referred to as "the personal saving rate," is calculated on a monthly, quarterly, and annual basis
as the ratio of personal saving to DPI.

Gross saving as a percentage of gross national product (GNP), sometimes referred
to as "the national saving rate," is calculated on a quarterly and annual basis as the ratio of gross
savingthe sum of gross private saving, gross government saving, and capital grants received
by the United States (net)to GNP.

U.S. residents are individuals, governments, business enterprises, trusts,
associations, and similar institutions that have the center of their economic interest in the United
States and that reside or expect to reside in the United States for 1 year or more. (For example,
business enterprises resident in the United States include U.S. affiliates of foreign companies.)
In addition, U.S. residents include all U.S. citizens who reside outside the United States for less
than 1 year and U.S. citizens residing abroad for 1 year or more who meet one of the following
criteria: Owners or employees of U.S. business enterprises who reside abroad to further the
enterprises' business and who intend to return within a reasonable period; U.S. Government
civilian and military employees and members of their immediate families; and students who
attend foreign educational institutions.

Foreign residents include international institutions located in the United States,
foreign nationals employed by their home Governments in the United States, and foreign
affiliates of U.S. companies.

The rest of the world consists of foreign residents who are transactors with U.S.
residents.

The chain-type quantity and price indexes, in combination with the current-dollar estimates,
provide users with the basic data series from which all other analytical tables and presentations
of the NIPA's are derived. The chained (1992) dollar estimates provide measures to calculate
the percent changes for GDP and its components that are consistent with those calculated from
the chain-type quantity indexes. These estimates also provide comparisons of levels over time
and reasonable approximations of the relative importance, and the contributions to growth in
GDP, of most components for the years close to 1992. The chained (1992) dollar estimates are
also used to compute certain key aggregates, such as per capita GDP.

Quantity and price indexes

Changes in current-dollar GDP measure changes in the market value of the goods and
services produced in the economy in a particular period. For many purposes, it is necessary to
decompose these changes into quantity changes and price changes.

The changes in quantities and prices in the NIPA's are calculated using a Fisher formula
that incorporates weights from two adjacent periods. For example, the 199293 change in real
GDP uses prices for 1992 and 1993 as weights, and the 199293 change in prices uses
quantities for 1992 and 1993 as weights./4/ These annual changes are "chained"
(multiplied) together to form time series of quantity and price. (For
more details, see the box "Basic Formulas for Calculating Chain-Type
Quantity and Price Indexes.") Because the Fisher
formula allows for the effects of changes in relative prices and in the composition of output over
time, the resulting quantity or price changes are not affected by the substitution bias associated
with the fixed-weighted formula previously used to calculate changes in quantities and
prices./5/ The Fisher
formula also produces results that are not affected by the choice
of base periods. In addition, because the changes in quantities and prices
calculated in this way are symmetric, the product of a quantity index and
the corresponding price index equals the current-dollar index./6/

Chain-type quantity and price indexes that correspond to most of the current-dollar output,
product, and expenditure measures are presented in tables 7.17.14 and
7.177.20./7/ Percentage changes from the preceding period for GDP and
its major components and for other aggregates are presented in table 8.1.
Contributions by major components to changes in real GDP are presented in
table 8.2, which is discussed in more detail below.

Chained-dollar measures

BEA also prepares measures of real GDP and its components in a dollar-denominated
form, designated "chained (1992) dollar estimates." For GDP and most other series, these
estimates are computed by multiplying the 1992 current-dollar value by a corresponding quantity
index number and then dividing by 100./8/
For example, if a current-dollar GDP component equaled $100 in 1992 and if real output for this
component increased 10 percent in 1993, then the chained (1992) dollar value of this component
would be $110 ($100 &215; 1.10) in 1993.

For analyses of changes over time in an aggregate or in a component, the percentage
changes calculated from the chained-dollar estimates and from the chain-type quantity indexes
are the same; any differences will be small and due to rounding. However, because the relative
prices used as weights for any period other than the base period differ from those used for the
base period, the chained-dollar values for the detailed GDP components do not necessarily sum
to the chained-dollar estimate of GDP or to any intermediate aggregate. A measure of the extent
of such differences is provided in most chained-dollar tables by a "residual" line, which indicates
the difference between GDP (or an other major aggregate) and the sum of the most detailed
components in the table.

For periods close to the base year, when there usually has not been much change in the
relative prices that are used as the weights for the chain-type index, the residuals tend to be
small, and the chained (1992) dollar estimates can be used to approximate the contributions to
growth and to aggregate the detailed estimates.

As one moves further from the base year, the residual tends to become larger, and the
chained-dollar estimates become less useful for analyses of contributions to growth. In general,
the use of chained-dollar estimates to calculate component shares or component contributions to
real growth may be misleading for periods away from the base year. In particular, for
components for which relative prices are changing rapidly, these calculations may be misleading
even just a few years from the base year.

To assist users in making valid comparisons across components for periods away from the
base year, several changes have been made in the NIPA tables. Table 8.2
provides an accurate measure of the contributions of the major GDP components to the
percentage change in real GDP for all periods. This table should be used for periods far from the
base period, when the overall residual and the errors in contributions to growth become quite
large. This table uses exact formulas for attributing growth to the components of GDP and of
other aggregates, but the presentation is limited to the contributions to changes from the
preceding year or quarter and to changes in the major components of GDP. (For details, see the
box "Calculation of Component Contributions to the Change in GDP.")

For some analytical purposes, it may be desirable to calculate contributions to growth for
more than a single quarter or year, to calculate contributions to growth for aggregates other than
GDP, or to work with real estimates that are denominated in dollars. Two articles in the SURVEY
provide information on how to prepare chained-dollar series with different base periods
that permit the calculation of close approximations of contributions to real growth or of relative
changes for any period./9/ These articles show how
to calculate a chained-dollar series for any period by using the percent changes in the chain-type
indexes to compute chained-dollar series indexed to the current dollars of whatever base period
is appropriate for the analysis. In addition, these articles provide a number of chained-dollar
series over frequently cited time periods, such as decades and business cycles. In computing
these series, different base periods were used, depending upon the time period analyzed; for
example, for decades and business cycles, the midpoints of the periods were used.

The presentation of detailed quantity indexes, which are accurate for all periods, has been
greatly expanded in tables 7.37.20. The annual growth rates for major NIPA aggregates for all
yearly intervals for 1970 to the present are shown each month under "Historical Tables" under
"National Data" in the section "BEA Current and Historical Data" in the SURVEY.

Price indexes

BEA's featured aggregate price measure is the price index for gross domestic purchases,
which measures the prices paid for goods and services purchased by U.S. residents. This
index is derived from the prices of personal consumption expenditures (PCE),
gross private domestic investment, and government
consumption expenditures and gross investment. In contrast, the GDP price index measures the
prices paid for goods and services produced by the U.S. economy and is derived from the
prices of PCE, gross private domestic investment, net
exports, and government consumption expenditures and gross investment. Thus, the two
indexes differ with respect to coverage of the prices of exported and imported goods and
services. Price changes in goods and services produced abroad and sold in the United States
are reflected in the gross domestic purchases measure but not in the GDP measure; price
changes in goods and services produced by the U.S. economy and sold abroad are reflected in
the GDP price measure but not in the gross domestic purchases price measure. For example, a
change in the price of imported petroleum that is fully passed on to U.S. consumers would be
fully reflected in the price index for gross domestic purchases but not in the GDP price index,
because imports are subtracted in deriving GDP.

Implicit price deflators

BEA also prepares another price index, the implicit price deflator (IPD), which is calculated
as the ratio of the current-dollar value to the corresponding chained-dollar value, multiplied by
100 (see the box "Basic Formulas for Calculating Chain-Type Quantity and Price Indexes"). The
values of the IPD are very close to the values of the corresponding chain-type price index for all
periods./10/

Implicit price deflators for GDP and its major components are presented as index numbers
in table 7.1, and percentage changes from the preceding period for these measures are
presented in table 8.1.

Command-basis GNP and terms of trade

BEA also prepares a measure of "real" outputcommand-basis GNP (see table
1.11). Command-basis GNP is a measure of the goods and services produced by the U.S.
economy in terms of their purchasing power. GNP and command-basis GNP differ in how their
real values are prepared: In estimating real GNP, the current-dollar values of the detailed
components of exports of goods and services are deflated by export prices, the current-dollar
values of the detailed components of imports of goods and services are deflated by import
prices, and the current-dollar value of most factor income is deflated by the implicit price deflator
for final sales to domestic purchasers. In estimating command-basis GNP, the current-dollar
value of the sum of exports of goods and services and of receipts of factor income is deflated by
the implicit price deflator for the sum of imports of goods and services and of payments of factor
income.

The terms of trade is a measure of the relationship between the prices that are
received by U.S. producers for exports of goods and services and the prices that are paid by U.S.
purchasers for imports of goods and services. It is measured by the following ratio, with the
decimal point shifted two places to the right: In the numerator, the IPD for the sum of exports of
goods and services and of receipts of factor income; in the denominator, the IPD for the sum of
imports of goods and services and of payments of factor income. Changes in the terms of trade
reflect the interaction of several factors, including movements in exchange rates, changes in the
composition of traded goods and services, and changes in producers' profit margins. For
example, if the U.S. dollar depreciates against a foreign currency, a foreign manufacturer may
choose to absorb this cost by reducing the profit margin on the product it sells to the United
States, or it may choose to raise the price of the product and risk a loss in market share.

Classifications of production

In the NIPA's, production is classified by the type of product, by the sector, by the legal
form of organization, and by industry.

Type of product

Type of product classificationsgoods (durable and nondurable), services, and
structuresare presented for GDP and the components of final sales of domestic product.
Goods are products that can be stored or inventoried, services are products that cannot be
stored and are consumed at the place and time of their purchase, and structures are products
that are usually constructed at the location where they will be used and that typically have long
economic lives. If a product has characteristics of more than one of these classifications, it is
classified on the basis of the dominant characteristic.

Accordingly, the following products are included in goods: Restaurant meals; expenditures
abroad by U.S. residents except for travel; replacement parts whose installation cost is minimal;
dealers' margins on used equipment; and movable household appliances, such as refrigerators,
even when they are included in the purchase price of a new home.

The following products are included in services: Food (that is included in airline
transportation and hospital charges), natural gas and electricity (except in exports and imports of
goods and services); office supplies (that are included in current operating expense of nonprofit
institutions); foreign travel by U.S. residents; expenditures in the United States by foreigners;
repair services, which include the cost of parts (except replacement parts whose installation cost
is minimal); defense research and development; and exports and imports of certain goods,
primarily military equipment purchased and sold by the Federal Government./11/

The following products are included in structures: Mobile homes; certain types of installed
equipment, such as elevators, heating, and air conditioning systems; brokers' commissions on
sale of structures; architectural and engineering fees included in the value of structures; land
development costs; and mining exploration, shafts, and wells.

In personal consumption expenditures, exports, imports, and government consumption
expenditures and gross investment, durable goods have an average life of at least 3 years. In
fixed investment, producers' durable equipment consists of goods that have an average life of at
least 1 year. In change in business inventories, goods held by manufacturing and trade
establishments are classified as durable goods or nondurable goods in accordance with the
classification of the industry of the establishment holding the inventories. Inventories held by
construction establishments are classified as durable goods; inventories held by all other
establishments are classified as nondurable goods.

Sector

In the NIPA's, a breakdown of GDP is also shown in terms of the three sectors of the
economybusiness, households and institutions, and general government.

Business: Production by all entities that produce goods and services for sale at a
price intended at least to approximate the costs of production, corporate and noncorporate
private entities organized for profit, and certain other entities that are treated as business in the
NIPA's. These entities include mutual financial institutions, private noninsured pension funds,
cooperatives, nonprofit organizations (that is, entities classified as nonprofit by the Internal
Revenue Service (IRS) in determining income tax liability) that primarily serve business, Federal
Reserve banks, federally sponsored credit agencies, and government enterprises./12/ Business production also includes the services of
owner-occupied housing and of buildings and equipment owned and used by nonprofit
institutions that primarily serve individuals. Gross product of the business sector is measured as
GDP less the gross product of households and institutions and of general government./13/

Households and institutions: Production by households, consisting of families and
unrelated individuals, and by nonprofit institutions that primarily serve individuals. Gross product
of households and institutions is measured by the compensation paid to domestic workers and to
the employees of these nonprofit institutions.

General government: Production of all Federal Government and State and local
government agencies except government enterprises. Gross product of general government is
measured as the sum of the compensation of the employees of these agencies and of the
consumption of fixed capital.

For the domestic business sector, income and its components are shown for four legal
forms of organizationscorporate business, sole proprietorships and partnerships, other private
business, and government enterprises (employee compensation only).

Sole proprietorships: All entities that would be required to file IRS Schedule C
(Profits or Loss from Business) or Schedule F (Farm Income and Expenses) if the proprietor met
the filing requirements, together with owner-occupied farm housing.

Other private business: All entities that would be required to report rental and royalty
income on the individual income tax return in IRS Schedule E (Supplemental Income and Loss) if
the individual met the filing requirements, tax-exempt cooperatives, owner-occupied nonfarm
housing, and buildings and equipment owned and used by nonprofit institutions that primarily
serve individuals.

Government enterprises: Government agencies that cover a substantial proportion
of their operating costs by selling goods and services to the public and that maintain their own
separate accounts. A "mixed" treatment of government enterprises is used in the NIPA's: Some
types of transactions are recorded as if they were part of the business sector, and others are
recorded as if they were part of the general government sector.

Government enterprises are treated like other businesses and included in the NIPA
business sector: (1) Their sales to final users are recorded as sales by private businesses, (2)
their purchases of materials and business services are considered intermediate, and (3) their
compensation payments and consumption of fixed capital are deducted in calculating their
income. Within the business sector, government enterprises are classified as noncorporate
businesses.

Government enterprises are treated like other government agencies: (1) Their interest
payments are combined with those of general government rather than those of business, (2) their
investment in equipment and structures is combined with general government investment rather
than with business investment in gross private domestic investment, and (3) their profit-like
income, the current surplus of government enterprises (see the definition on
page 33), accrues to general government.

Industry

Industrial distributions are presented for national income and its components, capital
consumption allowances, employment and hours, and the change in business inventories and
the stock of business inventories./14/ The classification underlying the distributions of private
activities is based on the Standard Industrial Classification (SIC)./15/

Industrial distributions of government activities are not provided; instead, they are
combined into a single category. For most series, separate estimates are shown for the activities
of the Federal Government, of State and local governments, and of government enterprises.
Expenditures by the Federal Government and by State and local governments are also shown by
type and by function.

The industrial distributions for private activities are based on data collected from
"establishments" or from "companies" (also called enterprises or firms). Establishments, as
defined in the SIC, are economic units, generally at a single physical location, where business is
conducted or where services or industrial operations are performed. Companies consist of one
or more establishments owned by the same legal entity or group of affiliated entities.
Establishments are classified into an SIC industry on the basis of their principal product or
service, and companies are classified into an SIC industry on the basis of the principal SIC
industry of all their establishments. Because large multiestablishment companies typically own
establishments that are classified in different SIC industries, the industrial distribution of the
same economic activity on an establishment basis can differ significantly from that on a company
basis. For example, employment of steel-manufacturing companies differs from employment of
steel-manufacturing establishments because the employment of these companies includes the
employment of establishments that are not classified in steel manufacturing and because it
excludes the employment of establishments that manufacture steel but are not owned by
steel-manufacturing companies.

Industrial distributions on a consistent establishment or company basis are not available
for all NIPA components. As a result, the industrial distribution of national income reflects a mix
of establishment and company data. For the following series, the industrial distributions are
based on establishment data: Compensation of employees, employment, hours, inventories,
rental income of persons, farm proprietors' income, farm net interest, and farm noncorporate
capital consumption allowances. For nonfarm proprietors, industrial distributions of proprietors'
income, net interest, and capital consumption allowances are based on company data; these
data are regarded as being substantially the same as if they were based on establishment data
because nearly all unincorporated companies own only one establishment (and the few
multiestablishment companies usually own establishments in the same SIC industry). For
corporations, industrial distributions of profits, nonfarm net interest, and capital consumption
allowances are based on company data.

In addition, individual industry series are not fully comparable over time. Historical
comparability is affected primarily by two factors. First, the composition of industries may change
because of changes in the SIC basis that is used for the estimates. This factor affects estimates
based on establishment data and on company data.

Second, historical comparability is affected because the industrial classification of the
same establishment or company may change over time. This factor affects company-based
estimates much more than establishment-based estimates. The classification of a company may
change as a result of the following: Shifts in the level of consolidation of entities for which
company reports are filed; mergers and acquisitions; and other shifts in principal activities,
especially for large diversified firms.

In addition to the SIC industrial distributions of private activities, some NIPA tables show
the following special SIC groupings, the titles of which correspond to the 1987 SIC:

This section describes the release schedule for the NIPA estimates, the publication of the
NIPA tables, and additional presentations of NIPA and NIPA-related estimates.

Release schedule

For gross domestic product (GDP) and most other NIPA series, quarterly estimates are
released on the following schedule: "Advance" estimates are released near the end of the first
month after the end of the quarter; as more detailed and more comprehensive data become
available, "preliminary" and "final" estimates are released near the end of the second and third
months, respectively.

For gross national product, gross domestic income, national income, corporate profits, and
net interest, advance estimates are not prepared, because of a lag in the availability of source
data. Except for the fourth-quarter estimates, the initial estimates for these series are released
with the preliminary GDP estimates, and the revised estimates are released with the final GDP
estimates. For the fourth-quarter, these estimates are released only with the final GDP
estimates.

Monthly estimates of personal income and outlays are released near the end of the month
following the reference month; estimates for the preceding 2 to 4 months are subject to revision
at that time.

Annual revisions of the NIPA's are usually carried out each summer and cover the months
and quarters of the most recent calendar year and of the 2 preceding years. These revisions are
timed to incorporate newly available major annual source data.

Comprehensive revisions are carried out at about 5-year intervals and incorporate three
major types of improvements: (1) Definitional and classificational changes that update the
accounts to portray more accurately the evolving U.S. economy, (2) statistical changes that
update the accounts to reflect the introduction of new and improved methodologies and the
incorporation of newly available and revised source data, and (3) presentational changes that
update the NIPA tables to reflect the definitional, classificational, and statistical changes and to
make the tables more informative.

Publication of the NIPA tables

Tables that present the NIPA estimates appear each month under
"National Data" in the
section "BEA Current and Historical Data" in the SURVEY
OF CURRENT BUSINESS./17/
The full set of NIPA tables consists of 142 tables that present annual, quarterly,
and monthly estimates. These tables are grouped into nine categories:

The NIPA tables are numbered as follows: The number preceding the period is the
category number, and the number following the period indicates the specific table in that
category; for example, table 2.2 is the second table in the second category "Personal Income and
Outlays."

Most of the full set of NIPA tables are published in the issues of the
SURVEY that describe the annual and comprehensive revisions
(for example, see the August
1997 SURVEY);
the remaining tables are published in subsequent months. In addition, a set of
"Selected NIPA Tables" is published monthly in the SURVEY; this set presents the estimates
for the most recent six quarters and the most recent 2 years. The selected set comprises 57
tables from the first eight NIPA categories (seasonally unadjusted estimates in the ninth category
are compiled only once a year and thus are not included in the selected set of tables). Because
the numbering system used for the full set of tables is retained in the selected set, gaps occur in
the numbering of the selected tables.

A note preceding the NIPA tables indicates information on the vintage of the estimates. In
general, the NIPA tables in the SURVEY present estimates for the most recent 24 years.
Historical annual and quarterly estimates for summary NIPA series are presented annually in the
SURVEY and cover the following: Current- and chained-dollar GDP for most of the
components in NIPA tables 1.1 and 1.2 and for final sales of domestic product and gross national
product; NIPA price indexes and implicit price deflators; and most of the major components of
national income and personal income in NIPA tables 1.14 and 2.1. For example, these estimates
were published as "Summary
National Income and Product Series, 192996" in the August 1997
SURVEY. In addition, historical annual and quarterly estimates for the major NIPA
aggregates are published monthly in the SURVEY.

Additional presentations of NIPA and NIPA-related estimates

The SURVEY also presents the following NIPA and NIPA-related estimates that do not
fit neatly into the system or publication schedule for the standard NIPA presentation.

"Gross Domestic Product by Industry" presents current- and chained-dollar estimates of
gross product, or gross product originating, by industry, which is the contribution of each
industryincluding governmentto GDP. Estimates for GDP by industry for 194796 were
published in the November 1997 SURVEY.

"Reconciliation Tables" in appendix A of the "BEA Current and Historical Data" section
presents tables that reconcile NIPA estimates with related series and that provide analytically
useful extensions of the NIPA estimates. At present, tables in this section show the
reconciliation of relevant NIPA series with related series in the balance of payments accounts
and the reconciliation of BEA compensation with Bureau of Labor Statistics earnings.

"Real Inventories, Sales, and Inventory-Sales Ratios for Manufacturing and Trade"in the
January, April, July, and October issues of the SURVEYshows quarterly and monthly
estimates for these series. Also shown are quarterly and monthly inventories for manufacturing
by stage of fabrication. Historical estimates for these series, quarterly for 1977 forward, were
published in the May 1996 SURVEY, and revised and new estimates for 199396 were
published in the October 1997 SURVEY. Estimates for 1959 forward are available
electronically to subscribers to STAT-USA's Economic Bulletin Board or Internet services (see
the box "Data Availability").

"Fixed Reproducible Tangible Wealth in the United States"usually published in the
September issue of the SURVEYshows annual estimates of stocks for fixed private capital,
government-owned fixed capital, and durable goods owned by consumers. Revised estimates
for 192995 were published in the May 1997 SURVEYand were updated
to 1996 in the
September 1997 SURVEY. (The publication Fixed Reproducible Tangible Wealth in the
United States, 192594 is forthcoming and will present the estimates described above and
additional estimates by industry and by type of asset for net stocks, consumption of fixed capital,
investment, and average age of net stocks.)

"Selected Monthly Estimates" for personal income by type of income and for the disposition
of personal income, including personal consumption expenditures, appears under "National Data"
in the "BEA Current and Historical Data" section of the SURVEY. These estimates are also
published annually in NIPA tables 2.82.11, and the estimates for the most recent months appear
in the personal-income-and-outlays news release.

"Source Data and Assumptions" shows the source data and the BEA assumptions for
missing key source data that are used to prepare the advance estimates of GDP. This
information is available at the time of the news release and is included in the
"Business Situation" article in the SURVEY
that presents the advance estimates./19/

Statistical Conventions Used for NIPA Estimates

Most of the NIPA estimates are presented in current dollars. Changes in current-dollar
estimates measure the changes in the market values of goods or services that are produced or
sold in the economy. For many purposes, it is necessary to decompose these changes into price
and quantity components. Prices are expressed as index numbers with the base periodat
present, the year 1992equal to 100. Quantities, or "real" measures, are expressed as index
numbers with the base period (1992) equal to 100; for selected series, they are also expressed in
chained (1992) dollars. (For further details, see the section "Real output and related measures.")

Seasonal adjustment

Quarterly and monthly NIPA estimates are seasonally adjusted at the detailed series level
when statistically significant seasonal patterns are present. For most of the series that are
seasonally adjusted by the source agency, BEA adopts the corresponding seasonal adjustment
factors. Seasonal adjustment removes from the time series the average effect of variations that
normally occur at about the same time and in about the same magnitude each yearfor example,
weather and holidays. After seasonal adjustment, cyclical and other short-term changes in the
economy stand out more clearly.

Annual rates

Quarterly and monthly NIPA estimates in current and chained dollars are presented at
annual rates, which show the value that would be registered if the rate of activity measured for a
quarter or a month were maintained for a full year. Annual rates are used so that periods of
different lengthsfor example, quarters and yearsmay be easily compared. These annual rates
are determined simply by multiplying the estimated rate of activity by 4 (for quarterly data) or by
12 (for monthly data).

r=&left;[ &left;( {GDP_t_GDP_0_}&right;)^m/n^-1 &right; ] × 100,

Percent changes in the estimates are also expressed at annual rates. Calculating these
changes requires a variant of the compound interest formula,
where

r is the percent change at an annual rate;

GDP_t_ is the level of activity in the later period;

GDP_0_ is the level of activity in the earlier period;

m is the yearly periodicity of the data (for example, 1 for annual data,
4 for quarterly, or 12 for monthly); and

n is the number of periods between the earlier and later periods (that is,
t-0).

Appendix Updated Summary NIPA Methodologies

This appendix presents summary descriptions of the
principal source data and methods used to prepare the
current-dollar estimates of gross domestic
product (GDP) and the estimates of real GDP./20/ These descriptions have been updated to reflect
the methodological improvements that were introduced in
the annual revision of the national income and product
accounts (NIPA's) that was released in July
1997./21/

Current-dollar estimates

Table 1 lists the components of current-dollar GDP
starting with the components on the product side and
proceeding to those on the income side. The
subcomponents, with their dollar values for 1996, are
grouped according to the methodology used to prepare
them.

The column for the annual estimates covers the
revision cycle for those estimates and notes the major
differences in methodology as the estimates move
through the three annual revisions to a benchmark
revision./22/ For example, for
"most goods" in personal consumption expenditures (the
first item on the product side), the table indicates
one methodology for benchmark years and another for all
other years.

The column for the quarterly estimates covers only
the advance estimate for the current quarterthat is,
the estimate prepared about a month after the end of
the quarter. That estimate, rather than the preliminary
or final quarterly estimate, is described because more
attention focuses on the "first look" at the quarter.
In addition, the column lists only the source data and
methods; it does not indicate how many months of source
data are available or whether the data are subject to
revision by the source agency. Information on the key
monthly source data appears each month in the
"Business Situation" in the
SURVEY OF CURRENT BUSINESS.
Additional information on the monthly source data used
for the advance estimate is available online from the
Department of Commerce's Economic Bulletin
Board./23/

The source data listed consist of a variety of
economic measures, such as sales or receipts, wages and
salaries, unit sales, housing stock, insurance
premiums, expenses, interest rates, mortgage debt, and
tax collections. For most components, the source data
are "value data"; that is, they encompass both the
quantity and price dimensions that are required for
current-dollar estimates. In these cases, the
methodology indicated in table 1 covers only the
adjustment of the value data to derive estimates
consistent with NIPA definitions and coverage.

For those estimates not derived from value data,
the table indicates the combination of data with
separate quantity and price dimensions that is used to
derive the required value estimate and the major
adjustments needed to derive estimates consistent with
NIPA definitions and coverage. On the product side, a
"physical quantity times price" method is used for
several components. For example, the estimate for new
autos is calculated as unit sales times expenditure per
auto (the average list price with options, adjusted for
transportation charges, sales tax, dealer discounts,
and rebates). On the income side, an "employment times
earnings times hours" method and variations of a "stock
of assets/liabilities times an effective interest rate"
method are used for several components.

Some of the source data shown in table 1 for the
annual estimates are used as indicators to interpolate
and extrapolate the levels established by source data
that are more comprehensive, and all of the source data
shown for the advance quarterly estimates are used to
extrapolate the level of the preceding quarter. In
addition, extrapolation and interpolation may be based
on trends, as is the case when "judgmental trend" is
listed in the table./24/

The commodity-flow method is used to obtain the
value of final users' purchases of goods and services
(that is, commodities) for BEA's benchmark input-output
accounts. These values serve as the benchmark for the
NIPA estimates of personal consumption expenditures
(PCE), of producers' durable equipment (PDE), and of
the commodity detail for State and local government
consumption expenditures and gross investment./25/ This method is also used for PDE in
nonbenchmark years, but it is implemented in an
abbreviated form. An even more abbreviated
commodity-flow method is used for current quarterly
estimates of PDE.

The retail-control method is used to estimate over
one-third of the value of PCE for periods other than
benchmark years. This method provides the indicator
series used in extrapolating and interpolating the
total of "most goods" and the "control" total to which
the PCE categories and residential PDE included in this
group must sum. These PCE categories consist of all
goods except autos and trucks, food furnished to
employees, food and fuel produced and consumed on
farms, standard clothing issued to military personnel,
school lunches, and net foreign remittances./26/

The perpetual-inventory method is used to derive
estimates of fixed capital stock, which in turn form
the basis for the estimates of consumption of fixed
capital. This method is based on investment flows and a
geometric depreciation formula; it is used instead of
direct measurement of the capital stock because direct
measurement is seldom statistically feasible on a
comprehensive basis./27/

The fiscal year-analysis method provides the
framework for the annual and quarterly estimates of
Federal Government consumption expenditures and gross
investment. The estimates of expenditures are prepared
by programthat is, by activity for a group of line
items or for an individual line item in the Budget of
the U.S. Government. For most programs, the fiscal year
analysis begins by adjusting budget outlays for
coverage and for netting and grossing differences
between these outlays and NIPA expenditures. The
expenditures total (as adjusted) for a program is then
classified by type of NIPA expenditurefor example,
transfer payments and interest paidwith nondefense
consumption expenditures and gross investment
determined residually. When a fiscal year analysis is
completed, the detailed array of NIPA expenditures by
program and by type of expenditure serves as a set of
control totals for the quarterly estimates./28/

Balance of payments accounts.The source data for
the foreign transactions reflected in most NIPA
componentssuch as net exports of goods and services
and rest-of-the-world corporate profitsare the balance
of payments accounts (BPA's), which are also prepared
by BEA./29/ As
noted in table 1, for some NIPA components, the BPA
estimates are adjusted to conform to NIPA concepts and
definitions./30/ Annual estimates of these
adjustments and their definitions are shown in NIPA
table 4.5, which was last published in the August 1997
SURVEY on page 82; summary quarterly estimates
are shown in "Reconciliation Tables" in appendix A of
the SURVEY.

Other information.In preparing the annual
estimates of several of the income-side components, BEA
adjusts the source data for various coverage and
conceptual differences. For each subcomponent listed
below, an annual NIPA table reconciles the value
published by the source agency with the NIPA value
published by BEA and identifies the BEA adjustments.
The following is a list of the subcomponents and their
corresponding reconciliation tables, which were last published in
the September 1997 SURVEY beginning on page 34: Wages and salaries, table
8.25; farm proprietors' income, table 8.22; nonfarm
proprietors' income, table 8.21; corporate profits,
table 8.23; net interest, table 8.24; and consumption
of fixed capital, table 8.20.

Real estimates

Table 2 shows which one of three methodsdeflation,
quantity extrapolation, and direct base-year
valuationis used to prepare the quantity index for
each detailed product-side component of real GDP and
identifies the source data with which the method is
implemented./31/
Deflation is used for most of the detailed components.
In deflation, the quantity index is obtained by
dividing the current-dollar index by an appropriate
price index that has the base yearcurrently 1992equal
to 100 and then by multiplying the result by 100.

The quantity-extrapolation and direct-base-year-valuation
methods are similar in that they both use explicit quantity
data. In quantity extrapolation, quantity indexes are obtained by
using a quantity indicator to extrapolate from the base-year
value of 100 in both directions. In direct-base-year
valuation, quantity indexes are obtained by multiplying
the base-year price by actual quantity data for the
index period and then expressing the result as an index
with the base year equal to 100.

The subcomponents in table 2 are the same as those
shown in table 1, but the detail differs to highlight
the alternative methodologies used for calculating the
real estimates./32/

Tables 1 and 2 follow.

Footnotes:

1. For
more information on the concepts underlying the accounts, see
Allan H. Young and Helen Stone Tice, An Introduction to
National Economic Accounting, NIPA Methodology Paper No. 1
(1985); and Carol S. Carson, GNP: An
Overview of Source Data and Estimating Methods, NIPA Methodology
Paper No. 4 (1987). For information on the availability of these
papers, see the box "Information About NIPA Methodology."

2. Purchases
of fixed assets, including residential structures by individuals and by nonprofit
institutions that primarily serve individuals, are classified as gross private domestic
investment.

4. Because the source data
available for most components of GDP are measured in dollars
rather than in units, the quantities of most of the detailed
components used to calculate percent changes are obtained by
deflation. For
deflation, quantities are approximated by real values (expressed
at present with 1992 as the base period) that are calculated by
dividing the current-dollar value of the component by its price
index, where the price index uses 1992 as the base period.

Two other methods, quantity extrapolation and direct base-year
valuation, are also used to calculate the real values for a
small number of the most detailed GDP components. For quantity
extrapolation, the real values are obtained by extrapolating the
base-year current-dollar estimates in both directions from the
base period (1992) by quantity indicators; for example, the real
values for mining exploration, shafts, and wells structures are
extrapolated using oilwell footage drilled. For direct-base-year
valuation, the real values are obtained by multiplying base-year
prices by quantity data for each period; for example, the real
values of natural gas inventories are calculated using quantities
and prices of natural gas stocks.

6. For
the annual estimates of NIPA aggregates that include the components
"change in business inventories" and "change in Commodity Credit
Corporation inventories," this relationship does not hold exactly,
because of the price-data conventions used to calculate those
components. In addition, for the quarterly estimates, all quarterly
chain-type quantities and prices are adjusted to average to the
corresponding annual estimates. For details on quarterly
calculations, see the box "Basic Formulas for Calculating
Chain-Type Quantity and Price Indexes."

7. Indexes
are not presented for change in inventories, for net
exports, and for most of the "net" series in tables 7.5, 7.7,
7.11, 7.13, and 7.20. Indexes for these series are not
meaningful.

8. For change in business
inventories (in tables 1.2, 1.4, 1.6, 5.3, 5.11, 8.5, 8.7, and
8.9), real values are calculated as the difference between
end-of-period and beginning-of-period chain-weighted stocks of
inventories.

The following "real" series are calculated as the
current-dollar value of the series divided by an appropriate
implicit price deflator: The chained-dollar values of gross
national income and gross domestic income (in table 1.10), of
command-basis exports of goods and services and receipts of
factor income (in table 1.11), of gross and net domestic product
of nonfinancial corporate business (in table 1.16), and of
disposable personal income (in tables 2.1 and 2.9).

16. Regulated investment companies, small business
investment companies, and real estate investment trusts are
included in the SIC classification "holding and other investment
offices" and are not shown separately in the NIPA tables.

17. The
NIPA estimates appear first in news releases, which are available
to the general public in a variety of forms (see the box "Data
Availability").

18. In this category, the first table shows
year-to-year and quarter-to-quarter percent changes in the major
NIPA aggregates, and the second table shows contributions of the
major expenditure components to the percent change in real GDP.
The other tables show the following: Selected per capita series;
auto and truck output, farm and housing sector accounts; detail
on several components of gross national income (consumption of
fixed capital, capital consumption adjustment, business transfer
payments, supplements to wages and salaries, rental income of
persons, dividends, and interest); NIPA imputations and the
components affected; and reconciliations of several NIPA measures
with the source data (for example, tax return tabulations) from
which they are derived or to which they are closely related. The
last table shows fixed (1992) weighted quantity indexes for
selected series.

19. Additional
information about source data and assumptions is also available
online through STAT-USA's Economic Bulletin Board and on the
Internet (see the box "Data Availability").

24. For a few components, the
final quarterly estimates are based on newly available
source data that replace judgmental trends.

25. For
additional information on the commodity-flow
method, see U.S. Department of Commerce, Bureau of
Economic Analysis, Personal Consumption
Expenditures, Methodology Paper Series MP6
(Washington, DC: U.S. Government Printing Office,
1990): 3134; and U.S. Department of Commerce, Bureau
of Economic Analysis, GNP: An Overview of Source
Data and Estimating Methods, Methodology Paper Series
MP4 (Washington, DC: U.S. Government Printing Office,
1987): 1617.

27. For additional information
on the perpetual-inventory method, see U.S. Department
of Commerce, Bureau of Economic Analysis, Fixed
Reproducible Tangible Wealth in the United States,
192589 (Washington, DC: U.S. Government Printing
Office, January 1993): M-2M-15; and GNP: An
Overview, 1718. For additional information on the
geometric depreciation formula, see "Improved Estimates
of Fixed Reproducible Tangible Wealth, 192995," SURVEY
77 (May 1997): 6992.

28. For
additional information and an illustration of the
fiscal year-analysis method, see U.S. Department of
Commerce, Bureau of Economic Analysis, Government
Transactions, Methodology Paper Series MP5
(Washington, DC: U.S. Government Printing Office,
1988): 1920.

30. These adjustments are described in
U.S. Department of Commerce, Bureau of Economic
Analysis, Foreign Transactions, Methodology Paper
Series MP3 (Washington, DC: U.S. Government Printing
Office, 1987): 1525.

32. For the real estimates, the
distinction between annual and quarterly methodologies
is far less important than it is for the current-dollar
estimates. For the relatively few cases in which the
annual and quarterly source data differ, the major
differences are noted in the entry.